Luxuries get exclusive with tax all their own

January 01, 1991|By Doug Birch

Remember that $84,550 signal red Mercedes Benz 560SEC you had your eye on? The one with the palomino leather upholstery? Well, you should have bought it yesterday, because today it will cost about $6,700 more.

And how about that $100,000 Russian lynx fur coat you wanted to keep you warm this the winter? Did you forget to drop by your furrier to pick one up? Well, it will cost you more today: about $9,000 more. Same for the 10-karat tennis bracelet priced just under $30,000. As of midnight, the bottom-line price went up almost $2,000.

Conspicuous consumers woke up this morning to the sobering truth that living well -- really well -- will cost more in 1991.

A series of federal luxury taxes took effect at midnight after their adoption by Congress last fall to help balance the budget, in very small part, through what some termed an effort to soak -- or at least moisten -- the rich.

Starting today, luxury cars costing more than $30,000 will be taxed 10 percent of the amount above $30,000; new yachts costing more than $100,000 will be taxed 10 percent of the amount above $100,000; new fur coats and pieces of jewelry costing more than $10,000 will be taxed 10 percent of the amount above $10,000; and new private aircraft will be taxed 10 percent of the amount above $250,000.

Congress also raised so-called the "gas guzzler" tax on high-performance cars that burn up a lot of fuel: doubling the tax, which ranged from $650 to $1,500, to between $1,300 and $3,000.

Valley Motors on York Road in Baltimore County did brisk business over the weekend and planned to deliver two $90,000 automobiles yesterday, a sales official said.

Charles C. Fenwick Jr., owner of Valley Motors, said his business was up 25 percent in December, mostly from people who planned to buy a new car anyway but were rushing to beat the luxury tax deadline.

Some dealers in luxury goods warned that their businesses would suffer, triggering unemployment and further weakening the economy. Others shrugged it off.

Some consumers were steamed about the luxury tax while others were philosophical.

"We own a Mercedes, and we're not rich," said Frances Douglass, 63, of Lewisberry, Pa., who was in Valley Motors to have her family Mercedes repaired. "And now I'm not sure we'll ever own another one. We can't afford it. They keep adding all these crazy taxes."

She said it was not fair that upper-income taxpayers were being "singled out" to help balance the federal budget.

"Soak the rich?" she asked. "As though it's handed to you on a silver platter. My gosh, nothing could be further from the truth."

She said she worked 12 years to help support her family while her husband was getting his Ph.D. in psychology.

A middle-aged couple shopping for a Mercedes 300E, with a list price of $47,500, said they already had planned to buy a new car but were accelerating the purchase because of the luxury tax. Both declined to give their names.

The man said the extra $1,750 luxury tax would not have stopped them from buying the car later. The woman, who wore a fur jacket, said she saw nothing wrong with the new tax.

"It's about time the people with money paid for something," she said. "The poor people seem like the ones who pay for everything."

Mr. Fenwick, however, said he feared the new tax would drive customers away this year. "Probably people will not buy expensive cars as willingly as they have in the past," he said.

Most Mercedes customers, he said, are not wealthy enough to "soak." They include postal workers looking for a car they can keep 10 years or longer as well as more affluent people.

Bob Brookman, sales manager of Brooks BMW in Towson, said his sales were up 30 percent in December, particularly on the most expensive cars offered by his German automaker -- such as the 12-cylinder BMW 850 coupe, which lists for about $76,500. He doubts that the luxury tax will have much effect on his business.

"It will just become another accepted fee in the luxury car market," he said.

Richard Swartz of Mano Swartz furriers in Towson said "a lot of people came in December to beat" the luxury tax on high-priced coats. But he doubted the tax would translate into fewer purchases from his wealthiest customers.

Jack Brown, the owner of Bonded Jewelry Center stores, said, "We did notice some larger purchases in order to avoid the possible difficulty" with the luxury tax. But he added the tax probably wouldn't faze those customers in the market for high-priced items.

"In higher-income families, I don't think it's much of a difference," he said.

John Foster, vice president of SkyTech Inc., which sells Piper aircraft at Martin State Airport in Baltimore County, agreed. "The people who can afford to write a check for $600,000 anyway, it's not going to make any difference to them," he said.

Alan Hamerstrom of Interyacht in Annapolis said the luxury tax on yachts "is going to be devastating" to an industry already in recession.